For Earthlink Black Tuesday Looms: Job cuts, restructuring

[qi:004] EarthLink (ELNK), the Atlanta-based Internet Service Provider that has been taking it on the chin in the stock market for the past few months, is in for some major bloodletting, perhaps as soon as tomorrow.

It’s been hard to reach some of my easy-to-reach sources; they all seem to have gone to the ground, as they say. That is not a good sign.

The shake-up is expected, with Wall Street analysts such as Cowen & Co.’s Jim Friedland betting that recently appointed CEO Rolla Huff will take tough measures, including making major cuts to the dial-up side of the business. Other options include selling off the New Edge Networks division, which sells data services to small- and medium-sized businesses. EarthLink acquired New Edge Networks in April of 2006.

The biggest shake-up, however, is likely to come in EarthLink’s municipal wireless group. The MuniFi experiment hasn’t gone according to plan, even though the company was successful in signing up quite a few cities for MuniFi networks. But Earthlink’s San Francisco-effort, for example, is mired in a political morass. The Arlington (Virginia) and St. Petersburg (Florida) MuniFi networks are currently on hold.

We are being told that Don Berryman Don Berrymore, who used to run the MuniFi business, left the company three weeks ago. (They are not the only ones suffering from the MuniFi-related issues.)

More importantly, the company is carrying the costs of Helio, an expensive MVNO effort. Helio, after starting out with $440 million in backing from SK Telecom and EarthLink, recently raised another $200 million ($100 million each from the two partners.) Will Earthlink follow through with this (and future) investments, remains to be seen.

Helio is estimated have $40 million in operating costs, not an easy pill to swallow considering that the company continues to lose subscribers in its core ISP business.

EarthLink is between the rock and a hard place: If it gets rid of those money-losing businesses, then it is left with a business whose growth engine is negative.